Latin Stocks May Rise 40% in 2009, Citigroup Says

Feb. 2 (Bloomberg) — Latin American stocks may gain 40 percent in 2009, rebounding from their worst annual decline in two decades, on the prospect the U.S. recession ends by the middle of the year, said Citigroup Inc.

Latin America may grow 1.3 percent this year even as the global economy shrinks 0.7 percent, strategist Geoffrey Dennis wrote in a note. Risk aversion has started to ease and stock valuations are “very attractive,” he wrote.

“We expect the regional trading range to hold for 2-3 more months as further poor macro news is digested, before a major upside breakout occurs, generating dollar returns of 40 percent by end-2009,” Dennis wrote. “Our view is based, above all, on the U.S. recession ending in mid-year.”

The MSCI Latin America Index tumbled 53 percent last year, the steepest since Bloomberg records began in 1988, while the Standard & Poor’s 500 Index lost 38 percent. The Latin measure has recovered about a quarter of its value since last year’s low, spurred by rallies for Brazilian and Chilean stocks last month.

Citigroup recommends an “overweight” equity position in Chile and Brazil, predicting the latter’s economy will grow 2.2 percent this year.

Brazil’s Bovespa index has gained 3 percent this year, while Chile’s Ipsa has surged 7.4 percent. Central banks in both nations cut interest rates by a full percentage point last month to boost their economies. The U.S., which entered recession at the end of 2007, is Brazil’s biggest trading partner and a major buyer of its commodities.

Latin America equity funds posted inflows for a fourth straight week in late January, EPFR Global said. Brazil was the “driver” behind flows into Latin America funds, the funds tracker said.

The MSCI Latin America Index has dropped 0.5 percent this year, compared with an 8.4 percent decline for the MSCI Emerging Markets benchmark and an 8.6 percent drop for the S&P 500 Index.

To contact the reporter on this story: James Attwood in Santiago at jattwood3@bloomberg.net

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